Global government bonds steady after selloff while Fed meeting looms large

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By Alun John and Ankur Banerjee

LONDON/SINGAPORE, Dec 9 (Reuters) – The global bond selloff paused on Tuesday and stocks drifted as traders turned their attention to the coming Federal Reserve meeting and the implications of the U.S. allowing Nvidia’s second-best chips to be exported to China. 

Joining the Fed in the spotlight this week is the Reserve Bank of Australia, which held rates steady as expected on Tuesday. More notably, however, it ruled out further policy easing and warned that rates could move higher if inflation pressures prove to be stubborn. 

That pushed the Australian dollar to trade just shy of its highest in nearly three months. 

The Bank of Canada and Swiss National Bank are both expected to hold rates steady when they meet on Wednesday and Thursday respectively.

Meanwhile, comments by influential European Central Bank board member Isabel Schnabel created waves this week despite the ECB not setting policy until next week. She said on Monday that the next move in euro interest rates is more likely to be up – even if it is not on the immediate horizon – and warned that leaving rates unchanged for too long could bring a passive easing of monetary policy. 

Those remarks sent yields on shorter and longer-dated German government bonds to their biggest daily rise in months on Monday and also pushed U.S. Treasury yields higher. [GVD/EUR] [US/] 

Things were calmer on Tuesday, however, with the 10-year German benchmark yield nearly 2 basis points lower at 2.85%, about a nine-month high, while the 10-year Treasury yield was down a similar amount at 4.16%. 

Stocks were also fairly calm. European stocks were a touch softer and U.S. share futures a whisker firmer on the day, though Asian stocks retreated. [.EU] [.N] 

FED IN FOCUS 

Worries about Japan’s fiscal health have been driving Japanese government bond yields higher, with global spillovers, making for an interesting setup for the Fed’s meeting, which concludes on Wednesday. [JP/] 

A rate cut of 25 basis points is all but priced in, but there is plenty more for investors to be watching.  

“Between the possible dissents, Fed Chair Powell’s tone and the summary of economic projections, I think there’s a lot of ways markets could be surprised,” said Erica Camilleri senior global macro analyst at Manulife Investment Management.

These will also show whether the next Fed chair will take over a body nervous about further rate cuts or happy to go along with President Trump’s wishes for looser policy. 

White House Economic Adviser and top contender for the next chair, Kevin Hassett, said Monday that the Fed should continue to lower interest rates. And that will raise questions about how the Fed will operate in the medium term. 

“What happens when we look at 2027 and 2028? Is this a Federal Reserve that will hike rates if we see a re-acceleration in growth? Or is this a Federal Reserve that has an easing bias, and so, even if we see a re-acceleration in growth and inflation data, they stay pat?” said Camilleri. 

NVIDIA RISES ON CHINA SALES NEWS

Investors were also trying to think through the implications of U.S. President Donald Trump saying Washington will allow Nvidia’s H200 processors, its second-best artificial intelligence chips, to be exported to China, collecting a 25% fee on such sales. 

Nvidia shares rose about 2% in premarket trading, but Chinese tech names slid both onshore and in Hong Kong. Hong Kong’s Hang Seng Tech index lost nearly 2%. 

Currencies, too, were fairly steady. The euro last bought $1.1639, little changed as higher European yields were matched by higher U.S. yields, while sterling was flat at $1.3321. [FRX/] 

The yen was slightly softer at 156.27 per dollar after weakening immediately in the wake of a powerful earthquake that rocked Japan. 

In commodities, oil prices steadied after diving 2% in the previous session as market participants kept a close eye on peace talks to end Russia’s war in Ukraine.

Brent crude futures were 0.2% up at $62.62 a barrel while U.S. West Texas Intermediate crude gained 0.3% to $59.05. [O/R] 

(Reporting by Ankur Banerjee in Singapore and Alun John in London Editing by Shri Navaratnam, Saad Sayeed and David Goodman)